As the construction industry continues to expand, companies with the best culture will find the most success. So says Mike Novakoski, the president and CEO of Holland-based general contractor Elzinga & Volkers Inc. Like many of the region’s construction managers, the company finds itself with a strong backlog heading into the New Year and few signs of a slowdown.
What’s on your mind as you look toward 2019?
We’re finding the draw of our resources outside of our area. … Nationally, we seem to have opportunities that we didn’t have before. Post recession, but (especially) in the last couple of years, our firm has been identified as someone who does great work here in the Midwest. Now we’re doing work in many, many states for clients who have pretty broad, aggressive construction expansion plans.
Is there anything in particular that’s driving that national expansion?
A lot of these have to do with regulation changes, with different laws that have come into place, with markets that continue to develop. I think people’s fear of using capital to exercise these expansions plans that they’ve been holding onto for many years — let’s say from 2010 on — has now really come to fruition. The rush to get things done, maybe before interest rates go up, could be part of the concern. Capturing the labor market when it’s available and taking advantage of that … is something we’re seeing.
What impact are rising construction costs having on your business?
There’s a little bit of a panic from owners who see prices continue to rise and wanting to lock in the lowest construction cost on a project as possible. They know that labor rates are going up. They’re seeing that expense side going up. Materials have gone up in some cases. You’re sitting here with projects that used to cost $200 a foot, now they’re maybe going to go at $215 or $220 in the next year or two. So they are jumping at the opportunity to build sooner than later.
What markets do you expect to be the most active next year?
Health care continues to expand. The senior living industry, for us, continues to expand based on need. They research the markets and we keep getting hired to build out these sprawling needs. So, yes, it feels good. We were just talking about our backlog of going into 2019, and it’s very robust. We’re probably 70 percent sold already for 2019, and that’s based on current employment. We have more capacity than that as we continue to hire and develop and expand nationally.
Do you see the combination of rising costs and limited labor pool leading to a significant pinch point for the local construction sector next year?
I think there is some restriction to that. The companies who have the ability to attract the talent are the ones that win. We’ve been blessed as a company to have zero voluntary turnover last year. We have a waiting room of people based on the draws to our culture. That gives us a big advantage to take on work that others maybe can’t. But there’s this whole law of supply and demand, and a reduction in available labor will drive costs up because people can get a premium.
What are some examples of that?
I think that the market’s going to decide when they can’t afford to be doing projects because of the labor, and then … there’ll be that slowdown. There’s that tendency to go back and forth. We see certain clients like that. We have some retail clients that … during the recession, they were getting really advantageous pricing from the contractors who were desperate to keep their people employed. Now the shoe’s on the other foot. These same retailers are saying we can’t afford to build now. Well, they just got spoiled for the low cost of construction before. Now we’re back into the reality of the market where people are, deservingly so, making money at their efforts.
Does the West Michigan community need to accept these higher costs as a new normal and just a cost of doing business?
We’re dealing with an abundance economy, and people like the public sector, sometimes they’re the ones who are going to suffer, because as contractors look at their available opportunities, they’re literally making the decision that best suits them, their bottom line, and their people. The public sector demands high competitive bid, endless numbers of people going for the same work, and usually it’s driven by a low cost.
If trade contractors, general contractors, construction managers have a choice to work in private industry, and private industry can decide to negotiate, or maybe only invite two or three people, the opportunities go up for the contractor. So that market — say the public school market, with some of the bond votes that just came through — those things can end up costing more, just theoretically, because contractors can pick and choose what it is they want to apply their limited resources toward.
What’s something unexpected you could see playing out in 2019?
A positive impact on some of the tariffs and some of the trade deficit between China and all that. If we can work through that, it will create additional comfort that we can get what we deserve in the U.S. economy, that we can have a stronger position in the world that will create even more comfort with our manufacturing base and create more opportunities for the manufacturers.
Interview conducted and condensed by Nick Manes.